| When you are facing foreclosure,
the question of a deficiency judgement after foreclosure may be
on your mind. What is it, are you at risk, and how does it work?
What Is a Deficiency Judgement?
A deficiency judgement is when your mortgage lender seeks a
legal judgement against you for the difference between what
they are owed or the fair market value of the home and what
the home sold for at the foreclosure sale. In many states,
there are caps on what the lender can seek and it is often
what the fair market value of the home is. For example, if
your home is worth $250,000 and the house sold at
foreclosure auction for $150,000, your lender can seek a
judgement against you for $100,000. This can also happen if
you sell your home through a short sale.
When Can a Deficiency Judgement After Foreclosure Happen?
It all depends on the laws in your state. In some states
lenders have the right to seek a deficiency judgement after
foreclosure and in others they do not. Check with an
attorney or ask a foreclosure professional in your state to
find out. In some states where judicial foreclosure happens,
the deficiency judgement is part of the foreclosure lawsuit.
In other states and non-judicial foreclosure states, it
requires that the lender sue the borrower through the legal
system.
Will Your Lender Pursue a Deficiency Judgement?
In general, it is unlikely but if you bank has the right to
pursue one, do not discount the possibility. If you have
assets beyond your home and those assets are significant,
your bank may decide to pursue you for a deficiency
judgement after foreclosure. If you come into a significant
amount of money sometime after the foreclosure and your
lender finds out about it, they may come after you for the
money. Just because it does not typically happen does not
mean that it will not happen. If you can, seek legal help to
get a better idea of what may happen.
How Can You Avoid a Deficiency Judgement After
Foreclosure?
The best way to avoid it is by talking to your bank before
the foreclosure goes through. If possible, you may want to
hire an attorney and see if there is a way to get your bank
to sign away their right to a deficiency judgement. Whether
or not this works for you will depend on your situation. You
may be more likely to get your lender to sign off on this if
you are pursuing a short sale rather than just letting the
home be foreclosed on.
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